Shares of Gujarat Toolroom, a low-priced stock, witnessed a steep decline in intraday trading today, hitting the lower circuit limit of ₹2.34 per share on the Bombay Stock Exchange (BSE). The significant drop in the stock price came after the company disclosed its financial results for the third quarter of the fiscal year 2024-25 (Q3FY25), which showed a sharp contraction in profitability. Gujarat Toolroom reported a 90% year-on-year (YoY) decline in net profit, causing investor sentiment to weaken and resulting in a sell-off.
According to the financial report, the company’s net profit for Q3FY25 stood at ₹1.43 crore, marking a substantial reduction from the ₹14.32 crore it had posted in the corresponding quarter of the previous financial year (Q3FY24). This dramatic drop in earnings underlined the challenges the company faced in maintaining profitability, despite other financial indicators showing growth. The market reaction was swift, with the stock reaching its 5% lower circuit limit as investors digested the sharp decline in net profit.
Revenue Growth Amid Profitability Decline
Interestingly, despite the substantial drop in net profit, Gujarat Toolroom registered strong revenue growth during the quarter. The company’s revenue from operations surged 76% YoY, rising from ₹131.06 crore in Q3FY24 to ₹230.74 crore in Q3FY25. This notable increase in revenue suggests a significant expansion in business activity, even though it did not translate into higher profitability.
The disconnect between revenue growth and profit decline indicates that Gujarat Toolroom may have experienced higher operational costs, increased expenditures, or other financial challenges that impacted its bottom line. Investors may have been concerned that while the company demonstrated an ability to generate more revenue, its efficiency in converting that revenue into profit had weakened significantly. The pressure on profitability could be due to rising input costs, increased competition, or other internal financial adjustments that adversely affected earnings.
Bonus Share Issuance to Enhance Shareholder Value
Alongside the earnings report, Gujarat Toolroom’s board of directors also announced the approval of a bonus share issuance, a corporate action aimed at rewarding existing shareholders. The company stated that it would issue 116.03 crore fully paid-up bonus equity shares, each with a face value of Re 1, to existing shareholders. This bonus issuance will be executed in a 5:1 ratio, meaning that for every one share currently held by an investor, they will receive five additional fully paid-up shares.
A bonus share issue is a mechanism through which a company distributes additional shares to its shareholders at no extra cost. Although this does not increase the overall market capitalization of the company, it does increase the total number of shares outstanding, which can influence liquidity and trading patterns. Investors typically view such bonus issues as a sign of confidence from the company’s management, as they imply a commitment to enhancing shareholder value.
Timeline and Details of Bonus Share Approval
The process of approving and issuing the bonus shares has been underway for some time. Initially, on January 6, 2025, Gujarat Toolroom’s board of directors approved the proposal for the 5:1 bonus share issuance. Following this, shareholders of the company formally approved the decision during a meeting held on February 8, 2025. Subsequently, on February 12, 2025, the company confirmed that February 18, 2025, would be the official record date for determining which shareholders would be eligible to receive the bonus shares.
On February 19, 2025, during a scheduled board meeting, the directors formally approved the allotment of 116.03 crore fully paid-up equity shares as per the predetermined bonus share ratio. This decision meant that all shareholders whose names appeared in the company’s Register of Members as of February 18, 2025, would receive the additional shares.
Understanding the Impact of the Record Date
The record date plays a crucial role in the issuance of bonus shares, as it determines the list of eligible shareholders. Since Gujarat Toolroom had set February 18, 2025, as the record date, only investors who held the company’s shares in their Demat accounts as of that date would qualify for the 5:1 bonus share allotment. Any investors who purchased shares after this date would not be entitled to receive the additional shares under the bonus issuance plan.
Market Reaction and Investor Sentiment
The combination of a 90% drop in net profit and the announcement of bonus shares resulted in a mixed market reaction. While the bonus issue aimed to enhance shareholder value by increasing liquidity and accessibility of shares, the sharp decline in profitability raised concerns about the company’s financial health. As a result, the stock faced downward pressure, hitting its 5% lower circuit limit at ₹2.34 per share on the BSE.
A lower circuit limit is the lowest price at which a stock can trade on a given day. When a stock reaches this limit, it signals a strong bearish sentiment, as sellers outnumber buyers. In the case of Gujarat Toolroom, the decline in net profit appears to have overshadowed the positive news of the bonus share issuance, leading investors to offload their holdings in response to weaker earnings.
Conclusion
Gujarat Toolroom’s third-quarter results presented a contrast between strong revenue growth and a sharp drop in profitability. While the company achieved a 76% YoY increase in revenue, its net profit declined by 90%, raising concerns about cost management and overall financial stability. The stock price reacted negatively, hitting the lower circuit limit as investors responded to the earnings report.
At the same time, the company’s decision to issue bonus shares in a 5:1 ratio aimed to enhance shareholder value and increase liquidity. The issuance process, which had been in the works since January 2025, was finalized on February 19, 2025, with the record date set as February 18, 2025.
Despite the bonus share announcement, investor sentiment remained bearish due to the significant decline in profitability, leading to a 5% drop in the stock price. Going forward, market participants will likely watch Gujarat Toolroom’s next financial results closely to assess whether the company can improve its profitability while sustaining its revenue growth.